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Budget: Dampener for increasing penetration of insurance, savings

Budget: Dampener for increasing penetration of insurance, savings

The Union Budget for 2023 has sparked mixed reactions from insurance industry leaders. While some see it as a positive move towards overall economic growth, others express concern over the new proposal to tax income from life insurance policies with an aggregate premium of Rs 5 lakh p.a. or more. This has the potential to negatively impact the sales of non-par products and deter individuals from purchasing additional policies. The lack of incentives for insurance plans may also put further pressure on household financial savings. The new budget is also expected to increase disposable income and support rural entrepreneurs, with the creation of the agriculture accelerator fund. However, the insurance sector was hoping for more strategic announcements, such as a reduction in the GST rate for health and life insurance, and increased tax benefits for health insurance premiums.

Vighnesh Shahane, MD & CEO, Ageas Federal Life Insurance: Union government has announced that from April 1 onwards, income from life insurance policies (other than ULIPs), with an aggregate premium amount of Rs 5 lakh p.a. or more, which was earlier tax-free will now be taxable. However, in case of the unfortunate death of the insured person, the death benefit will continue to remain tax-free. This move is similar to the proposal introduced by the government a couple of years ago which imposed tax on the maturity amount of ULIPs if the aggregate premium exceeded Rs 2.5 lakh p.a. This proposal is likely to dent the sales of non-par products which have been witnessing strong growth over the last few years, especially during the pandemic. As the cap of Rs 5 lakh is applicable for all life insurance policies across insurers, it may deter individuals from purchasing additional policies if they have exhausted their limit with their primary insurer.

Tarun Chugh, MD & CEO, Bajaj Allianz Life Insurance: Overall, the budget has been very positive with fiscal prudence and with a clear focus on overall growth.

The budget announced that for non-ULIP (traditional) insurance policies issued from the new fiscal year, income from only those policies with aggregate premium up to Rs 5 lakh shall be exempt. This is a bit of a dampener for the insurance industry and for increasing penetration of insurance and household financial savings in India. India still has quite low insurance penetration and there is a need to provide measures and incentives to boost that in the coming years. Also, household financial savings have been falling in India and insurance is a critical component of that. Household financial savings (as a % of GDP) has fallen from 8.1% in FY20 to 6.5% in FY23 (as per estimates). Discontinuing incentives on insurance plans should put further pressure on household financial savings to some extent.

MS Sreedhar, MD & CEO, Royal Sundaram General Insurance: The Insurance sector will gain from the increased economic activities and greater ease of doing business. At the same time, announcements such as vehicle replacement policy, digital public infrastructure for agriculture, a higher rebate on personal income tax and a more significant focus on public health will also substantially impact the non-life insurance sector. Being now the most populous country in the world, India has built a robust foundation consisting of demographic dividend, economic stability, tamed inflation, improved incomes, phygital distribution network and above all, better awareness towards insurance. The success of health insurance in the past decade – backed by strong government resolve to offer low-cost access has set the right context for the sector. We believe the industry has just scratched the surface and will ride on a high degree of customisation and product innovation in the coming years.

Srikanth Kandikonda, Chief Financial Officer, ManipalCigna Health Insurance: The new reforms proposed are  expected to increase the disposable income in the pockets of the working class, which will result in higher savings, spending and investments. Had the government considered reducing the GST rate on health insurance premiums and increasing the limit of tax deduction for health insurance under section 80D, these initiatives would have further helped millions of people access quality healthcare at an affordable cost.

Devesh Srivastava, CMD, General Insurance Corporation of India (GIC Re):

FM has delivered a holistic and futuristic Budget ensuring the strengthening of our Economy.

The new agriculture accelerator fund will not only motivate our young entrepreneurs in rural areas towards agri startups but also benefit the farmer by providing innovative and affordable solutions for the challenges faced by them. The massive capital expenditure planned will give a boost to the reinsurance sector.

Praveen Vashishta, Chairman, Howden Insurance Brokers India: To me, this is overall a win-win budget. We would have liked to see a few strategic announcements in the insurance sector- such as an increase in FDI to 100%, a reduction in the tax rate for foreign reinsurance branches, and the introduction of captives. We were also expecting some tax concessions such as a reduction of the GST rate on health and life insurance from 18% to 5%, creating a separate section for life insurance premium exemptions instead of including it in an already crowded 80C and an increase in the maximum deduction for tax benefits from health insurance premiums from Rs 50,000 to Rs 1 lakh under 80 D. With a forward-looking government, I am sanguine that we will see more of these areas in the time to come.


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